1. CHAPTER 1, SECTION 3- TRADE-OFFS & OPPORTUNITY COSTS
ECONOMICS
CHAPTER 1, SECTION 3-
TRADE-OFFS & OPPORTUNITY COSTS

2. I. Trade-Offs & Opportunity Costs
A. Definition of Trade-Off-A trade-off is the sacrifice of one good to purchase or produce another good.
1. Trade-offs must be made because when a resource is used to produce one good, that same resource cannot be used to produce another good.

3. I. Trade-Offs & Opportunity Costs
B. Definition of Opportunity Cost-An opportunity cost is the value of the next best alternative that is given up when the trade-off is made.

4. II. Production Possibilities Curve
A. Definition of PPC-The PPC is a graphic illustration of all the possible combinations of two goods or services that can be produced in a given period of time.

5. II. Production Possibilities Curve
B. Assumptions:
1. The amount of available resources will not change during the given period of time.
2. All factors of production are being used in the most efficient manner possible.

6. C 5 G E 4 B P 3
Economy
Cars
(in
millions) F D 2 1 A 1 2 3 4 5 Q
Luxury Cars (in millions)

7. C 5 G E 4 B P 3
Economy
Cars
(in
millions) F D 2 1 A 1 2 3 4 5 Q
Luxury Cars (in millions)

8. II. Production Possibilities Curve
C. Labels:
1. Inside-Inefficient use of resources.
2. Outside-Impossible production level.
3. On-Efficient production level.